Entrepreneurship Theories: Innovation, Keynesian, and More - PDF

Okay, here is the information from the images converted into markdown format. # Theories on Entrepreneurship ## What is a theory? A theory is a generalization that explains a set of facts or phenonmenon. It is not an absolute truth. It can be supported by another observation or proven to be otherw...

Okay, here is the information from the images converted into markdown format. # Theories on Entrepreneurship ## What is a theory? A theory is a generalization that explains a set of facts or phenonmenon. It is not an absolute truth. It can be supported by another observation or proven to be otherwise. There are several theories on entrepreneurship. Here are some of them: 1. Innovation Theory 2. Keynesian Theory 3. Alfred Marshall Theory 4. Risk and Uncertainty Bearing Theory 5. Other theories on entrepreneurship ## Joseph Schumpeter Joseph Schumpeter was an Austrian economist and political scientist. He wrote the book *The Theory of Economic Development*. This theory regards economic development as the product of structural change or innovation. The chances of economic development to take place would be slim unless revolutionary changes in the flow of economy would happen. ### Innovation Theory So what will happen if there is no revolutionary change in the economy?? An economy with no revolutionary change is deemed to be static and cannot expect any economic development. There will be no development in any economic equilibrium or status. ### Primary role of the entrepreneur to introduce innovation 1. New product 2. New production method 3. New market 4. New supplier 5. New Industry Structure ## John Maynard Keynes John Maynard Keynes was a British economist, whose book *General Theory of Employment, Interest and Money* published during The Great Depression in 1936. This theory puts emphasis on the role of the government in entrepreneurial and economic development most especially when the economy was experiencing depression. During this period of economic depression, money becomes scarce and the number of unemployed workers is high. ### Keynesian Theory ## Alfred Marshall Alfred Marshall was an English economist, who introduced in his book, *The Principle of Economics*, that there are four factors in the production (LAND, LABOR, CAPITAL, ORGANIZATION) of goods and services in the economy. He considered organization as the coordinating element. This theory is expected to create new commodities or improve existing ones. Entrepreneur could perform and meet expectations only if they had a thorough understanding of the industry where they operated. ### Alfred Marshall Theory To be continued... ## Risk and Uncertainty-Bearing Theory ### Frank Hyneman Knight Knight viewed an entrepreneur as an agent of the production process - risk taking is an important dimension that will differentiate an entrepreneur from a worker. Uncertainty "uncertain, unpredictable probabilities" is an important factor in the production of goods and services. Entrepreneur must anticipate possible random events to happen while shouldering the risk at the same time. Do you consider the risk uncertainty bearing theory of entrepreneurship, applicable to you as future entrepreneus? ## Other Theories on Entrepreneurship * Weber's sociological theory * Kaldor's technological theory * Leibenstein's gap-filling theory * Kirzner's learning-alertness theory ### Weber's Sociological Theory *Max Weber's* Max Weber's sociological theory emphasizes that social cultures are crucial for entrepreneurship, as entrepreneurs must align their activities with good customs, traditions, religious beliefs, and morals. ### Kaldor's Technological Theory *Nicholas Kaldor's* Nicholas Kaldor's technological theory emphasizes the importance of modern technology in production and entrepreneurship. Proper application of technology promotes efficiency in goods and services production, ensuring economic development and growth. ### Leibenstein's Gap-Filling Theory *Henry Leibenstein's* Henry Leibenstein's theory suggests that entrepreneurship primarily fills gaps in economic activities by connecting different markets and providing assistance to entrepreneurs facing failures and deficiencies. Which of these theories do you consider fitting to your dream of becoming a successful entrepreneur? ## Lesson 4 - Entrepreneurship and Ordinary Small Business Activity Entrepreneurship and the activities of ordinary small businesses differ in the following areas: 1. Motive in opening a business 2. Perception of risk in the business 3. Reactions to changes in the environment 4. View on competition 5. Vision for development and growth 6. Horizon of business operation 7. Sources of business funds ### Motive in Opening a Business An entrepreneur starts a business venture with the goal of success, constantly seeking new ideas in a constantly evolving business environment. On the other hand, the owner of an ordinary small business opens a business with the primary goal of making it his/her source of livelihood. ### Perception of Risk in the Business The entrepreneur takes and faces the business risk squarely, He/She considers it inherent in the business venture, prepares the business for it, and finds ways to minimize its effects. The owner of an ordinary small business, on the other hand, believes that the business risk is a deterrent to the operation of the business and must be avoided. ### Reactions to Changes in the Environment The entrepreneur considers changes in the environment a creative mechanism for development and growth in the entrepreneurial activities. They outline alternative courses of action in anticipation of the changes to happen. On the other hand, the owner of an ordinary small business remains passive and static to changes in the environment where his/her business operates. ### View On Competition Competition will undoubtedly force entrepreneurs to continuously improve their present products or services. It will be one of the factors that will make them creative in their endeavor. The owner of an ordinary small business, however, views competition as an unhealthy element in the business environment and tries to avoid it. ### Vision for Development and Growth The entrepreneur usually outlines the course of their entrepreneurial venture in terms of short-term, medium-term, and long-term plans of action. He/She makes sure that the vision and mission of his/her business is clear. The owner of an ordinary small business, on the other hand, relies upon chance or luck in maintaining the status quo of his/her business. ### On the Basis of Period #### Long Term Equity * Equity Shares * Retained Earnings * Preferences Shares * Debentures * Loan from Financial Institution #### Medium Term Equity * Loan from Banks * Public Deposits * Loan from Financial Institution #### Short Term Equity * Trade Credit * Factoring * Banks * Commercial Paper ### Horizon of Business Operation An entrepreneur thinks globally but acts locally. His/Her sight is always focused on the stars above, while his/her feet are firmly anchored on the ground. He/She is primarily concerned with the major economic events not only in the local environment but also in the global business market. The owner of an ordinary small business, meanwhile, is centered only on the local environment. He/She does not intend to participate in the global environment. The concept or view of operating outside the local market is inconceivable. ### Sources of Business Funds When the entrepreneur finds that the proposed business endeavor is a wealth-creating venture, he/she explores ways to generate the much-needed funds from both internal and external resources. On the contrary, the owner of an ordinary small business tends to limit the funding of their business enterprise to personal resources. Loans from external resources can be a risky undertaking for him/her. ### On the Basis of Ownership #### Owners Fund * Equity Share * Retained Earnings #### Borrowed Funds * Debentures * Loans from Banks * Loans from Financial Institutions * Public Deposits * Lease Financing ### On the Basis of Source of Generation #### Internal Sources * Equity Share Capital * Retained Earnings #### External Sources * Financial Institutions * Loan from Banks * Preference Shares * Public Deposits * Debentures * Lease Financing * Commercial Papers * Trade Credit * Factoring ## Lesson 7: Sources of Entrepreneurial Ideas BY: ANGELA SHAINE ALMODAL ### The Entrepreneurial Process of Creating a New Venture The process is as follows: 1. Creation of entrepreneurial Idea 2. Identification of entrepreneurial opportunities 3. Opening of entrepreneurial venture ### The Basic Need to Identify the Sources of Entrepreneurial Ideas 1. Changes in the Environment 2. Technological Discovery and Advancement 3. Government Thrust, Program, and Policies 4. People's Interests 5. Past Experience ### Changes in the Environment Entrepreneurial ideas arise from the changes that happen in the external environment with entrepreneurial implications. Not everyone welcomes changes in the external environment. However a person with an entrepreneurial drive views these changes positively. He/She determines what business opportunities they may provide. ### External Environment The external environment is made up of the following components: * Physical Environment: It is the external surroundings and conditions that people live in. The physical environment includes climate, natural resources, and wildlife. * Societal Environment: It is the physical and social setting where people live, and how their activities interact with the natural world. It includes the various forces like: economic forces, sociocultural forces, political forces, and technological environment. * Industry Environment: External environment in which a business operates and is affected by trends and changes. The industry environment of the business includes government, competitors, suppliers, customers, creditors, and employees. ### Technological Discovery and Advancement Discovery and advancement in the use of technology are another good source of entrepreneurial ideas and opportunities. Most people welcome technological discoveries and advancements but cannot identify or determine entrepreneurial opportunities stemming from them. On the other hand, a person with entrepreneurial interest looks at the possibility of business opportunities in any new discovery or advancement in technology. For example, a person with sufficient knowledge in the repair and installation of a mechanical engine discovers that the additional engine parts they installed during the repair have considerably reduced fuel consumption. That person could simply rest on their laurel for having contributed to fuel conservation. Nevertheless, if they had any entrepreneurial drive, they would see his discovery as a business opportunity to manufacture the new engine parts that could reduce fuel consumption. ### Government's Thrust, Programs, and Policies The priorities, projects, programs, and policies of the government are also good sources of entrepreneurial ideas. The term government in this lesson refers to the local government (municipal, city, or provincial) or the national government and its branches. The programs and agenda of the Philippine government intuitively address the needs of the Filipino people. There are also instances when the national government responds to the call of international agencies or the world market. When ever there are changes in the policies and programs of the government, new entrepreneurial ideas are likely born. For example, the use of firecrackers to celebrate New Year's Eve is strictly prohibited. People without entrepreneurial drive will view the ordinance as a plain restriction. An entrepreneur, however, will take it as a business opportunity to come up with a new product that will serve as a substitute for firecrackers. ### People's Interests The interests, hobbies, and preferences of people are a rich source of entrepreneurial ideas. For example, the increasing number of Internet cafés at present could be attributed to the strong attachment of young people to computers. The rise of amusement parks, nightspots, and nature farms could be a response to the need of people for fun and relaxation. However, an entrepreneur must be keen in identifying the cycle of interests and trends of his/her target market since these tend to continuously change. He/She must be ready to address the change properly and immediately to avoid possible negative effects on the operations of the business venture. ### Past Experiences Past experiences and exposures are also a good source of entrepreneurial ideas. The expertise and skills developed by a person who has worked in a particular field may lead to the opening of a related business enterprise. For example, an auditor who has learned the appropriate auditing and management advisory skills and techniques in a prominent auditing firm can start their entrepreneurial venture by opening his/her own auditing office. In a similar manner, a good engine mechanic who has worked in a leading car manufacturer may find it appropriate to open his/her vehicle repair shop. Thus his/her relevant job experiences in the past can lead to that entrepreneurial venture. ## Character Traits Common to Successful Entrepreneurs ### Entrepreneurial Character Traits The term character trait in this lesson refers to the mark or attribute that distinguishes an entrepreneur from the owner of an ordinary small business. Based on studies conducted by the Small Enterprise Research and Development Foundation (SERDF) of the Department of Trade and Industry (DTI), there are ten entrepreneurial characteristics grouped into three major clusters: 1. Achievement cluster 2. Planning cluster 3. Power cluster ### Achievement Cluster The achievement cluster includes entrepreneurial traits linked to an individual's drive to succeed in business. The entrepreneur who belongs to the achievement cluster is: 1. An opportunity-seeker 2. Committed 3. Persistent 4. A risk-taker 5. Efficient and quality-oriented #### Opportunity Seeker An aspiring entrepreneur must actively seek out business opportunities and possess the ability to easily identify the most suitable ones. They thoroughly evaluate the feasibility of each opportunity and immediately capitalize on viable prospects. A business opportunity-seeker is someone who: * Recognizes and acts on new business opportunities. * Takes advantage of unusual opportunities for financing, equipment, land, workspace, or assistance. Business opportunities can come from environmental changes, technological advancements, government policies, personal interests, or past experiences. #### Committed A committed entrepreneur is fully dedicated to their work or venture and remains positive, avoiding negativity or doubt. They: * Take full responsibility for promises made to customers. * Ensure proper coordination among workers to deliver goods and services as promised. * Prioritize customer satisfaction and interests. Commitment stems from interest, and a lack of interest leads to a lack of commitment. A committed entrepreneur is willing to go the extra mile, in contrast to someone who merely counts the costs. While an ordinary business owner might be content with routine activities, a committed entrepreneur views challenges and sacrifices as opportunities for persistence and growth. #### Persistent Persistence is key for entrepreneurs who want to succeed. They: * Take repeated actions to overcome obstacles. * Make personal sacrifices or put in extra effort to complete tasks. * Stick to their judgment even when facing opposition or failure. Successful entrepreneurs don't quit or surrender – they exhaust every option to keep their businesses going. Even when they feel discouraged, they continue to push forward. #### Risk-Taker Entrepreneurship inherently involves risk due to uncertainty about the feature. Entrepreneurs can be classified into three types of risk-takers: * Aggressive risk takers are unafraid to take risks. * Moderate risk takers carefully analyze situations before taking risks. * Conservative risk takers are cautious and avoid major risks, content with managing a small business. While risk-taking is a part of entrepreneurship, successful entrepreneurs thoroughly evaluate the pros and cons of a business opportunity before taking the plunge. They take calculated risks and employ precautionary measures, unlike ordinary small business owners who may take risks without considering the consequences. #### Efficient and Quality-Oriented Successful entrepreneurs prioritize both efficiency and quality in their business operations. They: * Perform tasks according to high standards of excellence and consistently improve their performance. * Strive to complete tasks faster and more cost-effectively. Efficiency involves minimizing production costs without sacrificing quality while still maintaining competitiveness. Entrepreneurs aim to maximize output with minimal input, reducing waste and enhancing productivity. At the same time, they focus on quality, working to eliminate defects and ensure customer satisfaction. Products of good quality rarely receive complaints or returns from customers. ### Planning Cluster The concept of planning is inherent in the entrepreneur, being both the owner and manager of the business. He/She often begins the day with a specific plan and ends it with a review of the progress or status of the plan. The plan serves as the blueprint of the actions to be undertaken by the entrepreneur. The entrepreneur who belongs to the planning cluster is: 1. A goal-setter 2. An information-seeker 3. Systematic in planning and monitoring #### Goal-Setter Goals must be SMART: * S- Specific * M- Measurable * A- Attainable * R- Realistic * T -Time-bound. #### Information-Seeker Entrepreneurs constantly make decisions that will affect the operations of their business ventures. These must be based not on their whims and caprices but on specific are relevant economic, financial, and industry data. Successful entrepreneurs, in other words, primarily seek a strong basis to make sound decisions. #### Systematic in Planning and Monitoring A successful and dynamic entrepreneur does not simply set goals and objectives or monitor entrepreneurial activities in any way he/she wants. Rather, he/she follows a systematic pattern of planning processes and monitoring approaches. The term systematic implies that there is a rational and logical approach in performing the activities. There are step-by-step procedures that are scientifically designed to be followed in the preparation of plans and monitoring of activities. Planning simply refers to the setting of goals and objectives. Monitoring, on the other hand, refers to the valuation of the activities and activities an adopted courses of actions whether they are carried in accordance with the plans. ### Power Cluster The power cluster includes a set of character traits that reflect the degree of the interpersonal relations maintained by successful entrepreneurs in the community. It establishes the relationships of the entrepreneurs with the suppliers of raw materials, financial institutions, customers, competitors, the government, employees, and all other stakeholders. The power cluster also defines how the entrepreneurs project themselves in the business community. It indicates the type and level of their linkages with the groups they are involved with. In simple terms, the power cluster refers to the relationship and image of the entrepreneur in the community. An entrepreneur in the power cluster is made up of a persuasive and positive networker, and self-confident individual. #### Persuasive and Positive Networker Successful entrepreneurs are persuasive and can easily influence and win over to their side the other stakeholders in business such as customers, suppliers, and prospective creditors. They are able to establish good and positive networking with almost all of the players in the business community. Successful entrepreneurs completely discard the concept of bribery in dealing with people. They rather employ or adopt a positive way of influencing others with their brilliant ideas and entrepreneurial aspirations. They are good communicators and they find it easy to sell their ideas. As a persuasive and positive networker, the successful entrepreneur usually: 1. adopts specific strategies the will influence and convince others while maintaining the highest degree of respect, and 2. makes use of positive contacts in the business community in order to meet the goals and objects of the business endeavor. #### Self-Confident Successful entrepreneurs are known to have a high level of self-confidence. They project a favorable image of themselves which is founded on respect and good deeds in the business community. Entrepreneurial self-confidence is actually a manifestation of the entrepreneur's strong trust or belief in himself/herself. A person with low self-confidence can hardly defend his/her own idea and is easily swayed by the ideas of others. However, a person with high self-confidence has developed a strong faith in himself/herself and in what he/she can do. ## Technical and Interpersonal Skills ### Technical Skills The technical skills of an entrepreneur include proficiency and ability, among others, in the following areas: * Information Technology * Feasibility Study and business plan preparation * Technical Writing Skills * Marketing * Management and Finance ### Interpersonal Skills Are basically about the relationship and interaction of the entrepreneur with the workers, suppliers, creditors, prospective customers, and other members of the business community. * Skills in verbal communication * Skills in non-verbal communication * Skills in Listening * Leading * Negotiating "To become a successful entrepreneur, is vital for you to acquire, develop, and mance your entrepreneurial skills involving the cognitive, technical, and interpersonal skills." ## Core Competencies A person who aspires to become a successful entrepreneur must fully understand and apply the concepts and principles of entrepreneurship. He/She must possess and internalize the character traits that are common among successful entrepreneurs. The entrepreneurial core competency is defined as the combination of entrepreneurial concepts and principles, entrepreneurial character traits, and entrepreneurial skills that provide and become the ultimate source of competitive advantage of the entrepreneur. ## Competitive Advantage refers to the strategic position and condition of the entrepreneurial ventures that: 1. Provides the necessary attributes to outperform competitors, 2. Distinguishes the venture from competitors, 3. Achieves superior performance in the industry, and 4. Produces the product or develops production methods that can hardly be. ## Total Perspective of a Successful Entrepreneur A successful entrepreneur overcomes all obstacles and problems in entrepreneurship. To ensure victory as a future entrepreneur, you must: 1. Understand fully the concepts and principles of entrepreneurship; 2. Internalize and live out the character traits that are common among successful entrepreneurs; and 3. Acquire, develop, sharpen, and focus your entrepreneurial skills.